SEC Issues Final Rule Mandating Disclosure About Audit Committee Financial Experts

SEC Issues Final Rule MandatingDisclosure About AuditCommittee Financial ExpertsFebruary 7, 2003„„SEC Issues Final Rule Mandating Disclosure About AuditCommittee Financial ExpertsOn January 15, 2003, the SEC adopted a final rule to implement Section 407 of the Sarbanes-Oxley Act of 2002, requiring public companies to disclose whether their audit committeesinclude at least one member who is a financial expert and defining the term “financialexpert.” The complete text of the final rule can be found atwww.sec.gov/rules/final/33-8177.htm.What does the new rule require?The new rule effectively requires a public company’s board of directors to determine whetherthe company has an “audit committee financial expert” serving on its audit committee. Thecompany must then disclose that its board of directors has determined that it either:has at least one audit committee financial expert serving on its audit committee; ordoes not have an audit cancial expert serving on its audit committee. If the former, the company must disclose the name of the audit committee financial expertand whether that person is “independent” of management (see below). If the latter, thecompany must explain why it does not have an audit committee financial expert. A companydisclosing that it does not have an audit committee financial expert is permitted to explainthe aspects of the definition that various board members satisfy. A company cannot satisfy the new disclosure requirements by ...